What are the advantages of investing in mutual funds?

The advantages of investing in mutual funds are twofold: One is that you are paying a professional to invest your money with an expertise and knowledge that you may not possess. Second, and probably most important is that by investing limited numbers of dollars, the investor is still able to have the diversity of holdings that they could not attain on their own. For the privilege the investor will pay a yearly that typically varies by type of fund and by fund family. There are other ways to achieve the same diversity and investing objectives, and those are through closed end mutual funds and through exchange traded funds.

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25th Nov 2009 by Amelia Timbers

Mutual funds offer an array of pros and cons. Mutual funds are a great way to meet a certain financial goal, because mutual funds are built with a theme, for example: tax free funds, or green investing, etc. Mutual funds are also a great way to control risk; you can choose mutual funds that are either managed in a certain style or that describe their risk tolerance into the prospectus. Mutual funds, like ETFs, are also another efficient means of investing in an array of securities with one investment- by buying shares of one fund, you are actually investing in all the securities the fund held. Buying all those securities separately could incur notable transaction costs. There are downsides, however. Many mutual funds charge fees, supposedly for the value added by the managers making the fiscal decisions about the fund's holdings. However, these fees can be substantial enough to cancel out the benefits gained by active management- they may charge you as much as you make, and the value added by managers are not always obvious. As a result, investors should research the funds they invest in very thoroughly, with a preference for no-fee funds.

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